Indexes Close Mixed

Insider Selling Activity Near Highest Level Since Q1 2019

The major equity indexes closed mixed Tuesday with mixed internals on the NYSE while the NASDAQ’s were positive. Trading volumes rose on both exchanges from the prior session. Some new closing highs were achieved, although by minor degrees. And while the chart trends remain positive, insider selling activity is now at its highest level since Q1 2019 while the leveraged ETF traders remain leveraged long, sending a cautionary signal to the markets in general. As such, we find the tug of war between the charts on one side while the data and valuation pull in the opposite direction, causing us to maintain our current “neutral” macro-outlook for equities.

On the charts, the indexes closed mixed yesterday with negative breadth on the NYSE while the NASDAQ saw positive internals.

• The SPX (page 2), COMPQX (page 3), NDX (page 3) and MID (page 4) posted losses as the rest rose.
• The DJI (page 2), DJT (page 4) and VALUA (page 5) made new all-time closing highs although on minor gains.
• Sell signals remain absent on the charts as all are in near-term uptrends and above their 50 DMAs.
• Cumulative breadth remains bullish on the All Exchange, NYSE and NASDAQ as well.
• The stochastic levels remain overbought but have not yet generated bearish crossover signals.
• Thus, the charts remain constructive, in our opinion.

Regarding the data, the McClellan 1-day OB/OS Oscillators remain neutral (All Exchange: +16.16 NYSE: +11.56 NASDAQ: +18.07).

• However, the OpenInsider Buy/Sell Ratio/Rydex Ratio have intensified their cautionary signal.
• The OI B/S is now at its highest level since Q1 2019 at 18.6. In sharp contrast, the leveraged ETF traders measured by the detrended Rydex Ratio (contrarian indicator page 8) have increased their leveraged long exposure at a bearish 1.39. As we have stated repeatedly, we have found the Rydex/Insider dynamic at these levels to typically be a prescient indicator regarding market pullbacks or at least pauses, although it may not pinpoint the exact timing. The recent slowing of the pace of progress in the markets may be a response to the current setup.
• This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) remained on a bearish signal at 18.3/58.6.
• Valuation continues to appear extended. The forward 12-month consensus earnings estimate from Bloomberg of $172.38 leaves the SPX forward multiple at 22.8 while the “rule of 20” finds fair value at 18.7. Again, the valuation spread has been consistently wide over the past several months while the forward estimates have continued to rise consistently.
• The SPX forward earnings yield is 4.38% with the 10-year Treasury yield rising to 1.3%.

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In conclusion, insider activity is becoming more of a concern as the ETF traders remain leveraged long. However, the lack of sell signals on the charts suggest we maintain our near-term “neutral” outlook for equities intact.

SPX: 3,860/NA

DJI: 31,143/NA

COMPQX: 13,600/NA

NDX: 13,400/NA

DJT: 12,577/13,000

MID: 2,450/NA

RTY: 2,175/NA

VALUA: 8,470/NA

Written By: Guy S. Ortmann, CMT